City of MuncieLocal Government

FINDING 2023-003 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Procurement and Suspension and Debarment Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): FY 2023 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Other Matters Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2022-005. Condition and Context Procurement - Policy The City had not established a purchasing policy that reflected applicable state laws and regulations, including procedures to avoid the acquisition of unnecessary or duplicative items and procedures to ensure that all solicitations incorporate a clear and accurate description of the technical requirements for the material, product, or service to be procured. Additionally, the City did not maintain written standards of conduct covering conflicts of interest and governing actions of its employees engaged in the selection, award, and administration of contracts. Procurement - Small Purchases Federal regulations allow for informal procurement methods when the value of the procurement for property or services does not exceed the simplified acquisition threshold, which is customarily set at $250,000. However, Indiana Code 5-22-8 has a more restrictive threshold of $150,000 or less for when small purchase procedures may be used. This informal process allows for methods other than the formal bid process. The informal process is divided between two methods based on thresholds. Micro-purchases, typically for those purchases $10,000 or under, and small purchase procedures for those purchases above the micro-purchase threshold, but below the simplified acquisition threshold. Micro-purchases may be awarded without soliciting competitive price rate quotations. If small purchase procedures are used, then price or rate quotations must be obtained from an adequate number of qualified sources. The City did not obtain price or rate quotes for the one vendor tested that was less than the simplified acquisition threshold of $150,000 but exceeded the $10,000 micro-purchase threshold. The micro-purchase threshold may be increased, but the City did not provide documentation that the threshold had been increased. Documentation detailing the history of procurement, which must include the reason for the procurement method used, was not available for audit. INDIANA STATE BOARD OF ACCOUNTS 19 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Suspension and Debarment Prior to entering into subawards and covered transactions with COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF), recipients are required to verify that such contracts and subrecipients are not suspended, debarred, or otherwise excluded. "Covered transactions" include, but are not limited to, contracts for goods and services awarded under a nonprocurement transaction (i.e., grant agreement) that are expected to equal or exceed $25,000. The verification is to be done by checking the Excluded Parties List System (EPLS), collecting a certification from that person, or adding a clause or condition to the covered transaction with that person. Due to the U.S. Department of the Treasury's determination that the revenue loss eligible use category does not give rise to subawards, the City was only required to comply with suspension and debarment requirements related to covered transactions. A population of nine covered transactions for goods or services were paid from SLFRF award funds during the audit period. A sample of three transactions were selected for testing. Of the three transactions tested, one vendor was not verified to not be suspended nor debarred or otherwise excluded or disqualified from participating in federal assistance programs or activities. The lack of effective internal controls and noncompliance were isolated to the small purchase noted above. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.318 states in part: "(a) The non-Federal entity must have and use documented procurement procedures, consistent with State, local, and tribal laws and regulations and the standards of this section, for the acquisition of property or services required under a Federal award or subaward. The non-Federal entity's documented procurement procedures must conform to the procurement standards identified in §§ 200.317 through 200.327. . . . INDIANA STATE BOARD OF ACCOUNTS 20 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (i) The non-Federal entity must maintain records sufficient to detail the history of procurement. These records will include, but are not necessarily limited to, the following: Rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price. . . ." 2 CFR 200.320 states in part: "The non-Federal entity must have and use documented procurement procedures, consistent with the standards of this section and §§ 200.317, 200.318, and 200.319 for any of the following methods of procurement used for the acquisition of property or services required under a Federal award or sub-award. (a) Informal procurement methods. When the value of the procurement for property or services under a Federal award does not exceed the simplified acquisition threshold (SAT), as defined in § 200.1, or a lower threshold established by a non-Federal entity, formal procurement methods are not required. The non-Federal entity may use informal procurement methods to expedite the completion of its transactions and minimize the associated administrative burden and cost. The informal methods used for procurement of property or services at or below the SAT include: . . . (2) Small purchases — (i) Small purchase procedures. The acquisition of property or services, the aggregate dollar amount of which is higher than the micro-purchase threshold but does not exceed the simplified acquisition threshold. If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources as determined appropriate by the non-Federal entity." Part 4 of the Treasury's Compliance and Reporting Guidance states: ". . . recipients are expected to have procurement policies and procedures in place that comply with the procurement standards outlined in the Uniform Guidance . . ." Cause The system of internal controls as established by management of the City was not effective at ensuring all required aspects of a procurement policy were included and that small purchases adhered to the procurement requirements. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the City's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper implementation of an effectively designed system of internal controls, the City cannot ensure their policy includes all the necessary elements and that the detailed history of procurement including the method utilized are retained for audit. INDIANA STATE BOARD OF ACCOUNTS 21 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Questioned Costs There were no questioned costs identified. Recommendation We recommended management of the City establish documented procurement procedures consistent with state and local laws for the acquisition of property or services required under a federal award or subaward as outlined in the code of federal regulations. In addition, we recommended the City adhere to the procurement policies and obtain required quotes and bids or adequately document a sole source situation. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2022-003 Subject: CDBG - Entitlement Grants Cluster - Reporting Federal Agency: Department of Housing and Urban Development Federal Program: Community Development Block Grants/Entitlement Grants Assistance Listings Number: 14.218 Federal Award Numbers and Years (or Other Identifying Numbers): B-20-MC-0010, B-21-MC-18-0010, B-22-MC-18-0010, M-20-MW-18-0010 Compliance Requirement: Reporting Audit Findings: Material Weakness, Other Matters Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2021-003. Condition and Context The City had not properly designed or implemented a system of internal controls, which would include appropriate segregation of duties that would likely be effective in preventing, or detecting and correcting, noncompliance. Recipients are required to submit financial, performance, and special reports annually or quarterly depending on the specifics of their CDBG - Entitlement Grant. Financial reports are entered into the Integrated Disbursement and Information System (IDIS). Grantees may include reports generated by the IDIS as part of their annual performance and evaluation reports that must be submitted 90 days after the end of the grantee's program year. Information to be tested from the IDIS is in the following system-generated reports: PR-26 - CDBG Financial Summary Report, PR26 - CDBG-CV Financial Summary Report, PR-26 CDBG Activity Summary by Selected Grant, PR-29 CDBG Cash on Hand Quarterly Reporting, and the PR-29 CDBG-CV Cash on Hand Quarterly Report. In addition, under the Federal Funding Accountability and Transparency Act (FFATA) grantees are required to report first-tier subawards of $30,000 or more to the FFATA Subaward System. The City, based on the grants received, was required to submit the following reports during the audit period: the PR-29 CDBG Cash on Hand Quarterly Report, the PR-26 CDBG Financial Summary Report, and the FFATA reports. PR-29 CDBG CV Cash on Hand Reporting The City submitted the four required quarterly reports; however, a single employee prepared and submitted the reports without a review or oversight process in place to prevent, or detect and correct, errors. Federal Funding and Transparency Act (FFATA) Reporting The City submitted the two required FFATA reports for the two subaward recipients that received over $30,000. Although the reports were prepared by one individual and approved by another, the internal control was not effective and did not detect and allow correction of errors prior to submission. Due to the lack of effective internal controls the following key data elements were missing: Subawardee DUNS number, Subaward obligation/action date, and the date of report submission (report submitted timely). The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.334 states in part: "Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient. . . ." 2 CFR 170, Appendix A(I)(a) states in part: "Reporting of first-tier subawards. Applicability. Unless you are exempt as provided in paragraph d. of this award term, you must report each action that equals or exceeds $30,000 in Federal funds for a subaward to a non- Federal entity or Federal agency . . . 2. Where and when to report. i. The non-Federal entity or Federal agency must report each obligating action described in paragraph a.1. of this award term to http://www.fsrs.gov. ii. For subaward information, report no later than the end of the month following the month in which the obligation was made. (For example, if the obligation was made on November 7, 2010, the obligation must be reported by no later than December 31, 2010.) 3. What to report. You must report the information about each obligating action that the submission instructions posted at http://www.fsrs.gov specify . . ." Cause A proper system of internal controls was not designed by management of the City, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the City's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, reports were not filed timely with all required key line items. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the City. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the City establish a proper system of internal controls, including strengthening their policies and procedures to ensure all required reports are filed and all required information is provided and supported by the City's records in a timely manner. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2022-004 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Reporting Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): FY 2022 Pass-Through Entity: Department of the Treasury Compliance Requirement: Reporting Audit Finding: Material Weakness Condition and Context The City had not properly designed or implemented a system of internal controls, which would include appropriate segregation of duties that would likely be effective in preventing, or detecting and correcting, noncompliance. Recipients are required to submit quarterly or annually Project and Expenditure (P&E) reports to the U.S. Department of the Treasury (Treasury). The reporting periods, as well as the respective due dates, are based upon type of recipient and its population, as well as the recipient's allocation amount. Information to be reported includes projects funded, expenditures, and contracts for the appropriate reporting period. The City was classified as a City with a population below 250,000 residents that received an allocation of more than $10 million in State and Local Fiscal Recovery Funds (SLFRF). As such, the initial P&E report, covering three calendar quarters from March 3, 2021 to December 31, 2021, was required to be submitted to the Treasury by January 31, 2022. The subsequent quarterly reports are to cover one calendar quarter and must be submitted to the Treasury by the last day of the month following the end of the period covered. The City submitted four P&E reports during the audit period; however, a single employee prepared and submitted the P&E reports without a review or oversight process in place to prevent, or detect and correct, errors. The lack of internal controls was a systemic issue throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." INDIANA STATE BOARD OF ACCOUNTS 21 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Cause A proper system of internal controls was not designed by management of the City, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the City's management of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper implementation of an effectively designed system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the City's management design and implement a proper system of internal controls, that would include segregation of duties for the preparation and review of federal reports to ensure appropriate reviews, approvals, and oversight are taking place. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2022-005 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Procurement Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): FY 2022 Pass-Through Entity: Department of the Treasury Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context The City had not properly designed or implemented a system of internal controls, which would include appropriate segregation of duties, that would likely be effective in preventing, or detecting and correcting, noncompliance. Federal regulations allow for informal procurement methods when the value of the procurement for property or services does not exceed the simplified acquisition threshold, which is customarily set at $250,000. However, Indiana Code 5-22-8 has a more restrictive threshold of $150,000 or less for when small purchase procedures may be used. Indiana Code provides that the proper purchasing method would be the bidding process, unless the purchase meets certain other qualifications. INDIANA STATE BOARD OF ACCOUNTS 22 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Six vendors fell within the simplified acquisition threshold. All six vendors were selected for testing. For three of the vendors tested, there were no requests for proposals received and no documentation to support the history of the procurement, including the rationale for the method of procurement, nor selection of the contract. In addition, there was no documentation that a cost or price analysis was performed for the three contracts. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.318 states in part: "(a) The non-Federal entity must have and use documented procurement procedures, consistent with State, local, and tribal laws and regulations and the standards of this section, for the acquisition of property or services required under a Federal award or subaward. The non-Federal entity's documented procurement procedures must conform to the procurement standards identified in §§ 200.317 through 200.327. . . . (i) The non-Federal entity must maintain records sufficient to detail the history of procurement. These records will include, but are not necessarily limited to, the following: Rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price. . . ." 2 CFR 200.324(a) states: "The non-Federal entity must perform a cost or price analysis in connection with every procurement action in excess of the Simplified Acquisition Threshold including contract modifications. The method and degree of analysis is dependent on the facts surrounding the particular procurement situation, but as a starting point, the non-Federal entity must make independent estimates before receiving bids or proposals." 2 CFR 200.320 states in part: "The non-Federal entity must have and use document procurement procedures, consistent with the standards of this section and §§ 200.317, 200.318, and 200.319 for any of the following methods of procurement used for the acquisition of property or services required under a Federal award or sub-award. . . . INDIANA STATE BOARD OF ACCOUNTS 23 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (b) Formal procurement methods. When the value of the procurement for property or services under a Federal financial assistance award exceeds the SAT, or a lower threshold established by a non-Federal entity, formal procurement methods are required. Formal procurement methods require following documented procedures. Formal procurement methods also require public advertising unless a non-competitive procurement can be used in accordance with § 200.319 or paragraph (c) of this section. The following formal methods of procurement are used for procurement of property or services above the simplified acquisition threshold or a value below the simplified acquisition threshold the non-Federal entity determines to be appropriate: (1) Sealed bids. A procurement method in which bids are publicly solicited and a firm fixed-price contract (lump sum or unit price) is awarded to the responsible bidder whose bid, conforming with all the material terms and conditions of the invitation for bids, is the lowest in price. The sealed bids method is the preferred method for procuring construction, if the conditions. (i) In order for sealed bidding to be feasible, the following conditions should be present: (A) A complete, adequate, and realistic specification or purchase description is available; (B) Two or more responsible bidders are willing and able to compete effectively for the business; and (C) The procurement lends itself to a firm fixed price contract and the selection of the successful bidder can be made principally on the basis of price. (ii) If sealed bids are used, the following requirements apply: (A) Bids must be solicited from an adequate number of qualified sources, providing them sufficient response time prior to the date set for opening the bids, for local, and tribal governments, the invitation for bids must be publicly advertised; (B) The invitation for bids, which will include any specifications and pertinent attachments, must define the items or services in order for the bidder to properly respond; (C) All bids will be opened at the time and place prescribed in the invitation for bids, and for local and tribal governments, the bids must be opened publicly; (D) A firm fixed price contract award will be made in writing to the lowest responsive and responsible bidder. Where specified in bidding documents, factors such as discounts, transportation cost, and life cycle costs must be considered in determining which bid is lowest. Payment discounts will only be used to determine the low bid when prior experience indicates that such discounts are usually taken advantage of; and (E) Any or all bids may be rejected if there is a sound documented reason. . . ." INDIANA STATE BOARD OF ACCOUNTS 24 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Cause The system of internal controls as established by the City was not properly implemented to ensure that goods and services that exceeded the simplified acquisition threshold were properly procured. A proper system of internal controls was not designed by management of the City. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the City's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, proper procurement procedures were not adhered to for all vendors. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the City establish a proper system of internal controls, and develop policies and procedures to ensure proper procurement procedures are adhered to for all purchases of good and services paid with federal awards. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2021-003 Subject: CDBG - Entitlement Grants Cluster - Reporting Federal Agency: Department of Housing and Urban Development Federal Program: Community Development Block Grants/Entitlement Grants Assistance Listings Number: 14.218 Federal Award Numbers and Years (or Other Identifying Numbers): B-17-MC-18-0010, B-18-MC-18-0010, B-19-MC-18-0010, B-20-MC-18-0010, B-21-MC-18-0010 Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2020-006. Condition and Context An effective internal control system was not in place at the City to ensure compliance with requirements related to the grant agreement and the Reporting compliance requirement. The City had not established a system of internal control to ensure that proper documentation was retained for audit and compliance with the Reporting compliance requirement was met. Federal Funding and Transparency Act Reporting The City did not complete the required Federal Funding and Transparency Act (FFATA) reporting for two of four subrecipients. For the reports not completed, we were unable to determine if the reports, with subaward expenditures totaling $148,086, were compliant with the grant agreement and compliance requirement. We considered the $148,086 to be questioned costs. Additionally, two reports the City completed, with expenditures totaling $79,000, were not submitted timely as they were filed after it was brought to the attention of the City's staff during the audit, and those reports were missing key elements. PR-29 CDBG CV Cash on Hand Reporting The City did not complete the two quarterly PR 29 CDBG CV Cash on Hand Reports for the COVID-19 - Community Development Block Grants/Entitlement Grants funds that were received in 2021. The lack of internal controls, noncompliance, and failure to maintain adequate supporting documentation were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.334 states in part: "Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient. . . ." 2 CFR 170, Appendix A(I)(a) states: "Reporting of first-tier subawards. 1. Applicability. Unless you are exempt as provided in paragraph d. of this award term, you must report each action that obligates $25,000 or more in Federal funds that does not include Recovery funds (as defined in section 1512(a)(2) of the American Recovery and Reinvestment Act of 2009, Pub. L. 111?5) for a subaward to an entity (see definitions in paragraph e. of this award term). 2. Where and when to report. i. You must report each obligating action described in paragraph a.1. of this award term to http://www.fsrs.gov. ii. For subaward information, report no later than the end of the month following the month in which the obligation was made. (For example, if the obligation was made on November 7, 2010, the obligation must be reported by no later than December 31, 2010.) 3. What to report. You must report the information about each obligating action that the submission instructions posted at http://www.fsrs.gov specify." Cause Management had not established a system of internal control that would have ensured compliance, or that adequate supporting documentation would have been maintained and made available for audit related to the grant agreement and the Reporting compliance requirement. Effect The failure to complete reporting, and to establish an effective internal control system prevented determination of the City's compliance with the Reporting compliance requirement. Questioned Costs Known questioned costs of $148,086 were identified, as detailed in the Condition and Context. Recommendation We recommended that the City's management establish a system of internal control to ensure proper reporting, and to ensure that documentation be maintained and made available for audit related to the grant agreement and the Reporting compliance requirement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2020-003 Subject: Economic Development Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Commerce Federal Program: Economic Adjustment Assistance CFDA Number: 11.307 Federal Award Number and Year (or Other Identifying Number): 06-19-01414 Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2019-003. Condition and Context An effective internal control system was not in place at the City to ensure compliance with requirements related to the grant agreement and the Activities Allowed or Unallowed and Allowable Costs/Cost Principles compliance requirements. The City had an interlocal agreement between the Muncie Industrial Revolving Loan Fund (MIRLF) Board and a managing company to pay an unspecified amount to the managing company for administration of the grant. The City paid $14,064 to the managing company in 2020 from grant funds; however, there was no supporting documentation to support the allocation of time spent on this grant. Therefore, the undocumented amounts paid to the managing company is considered questioned costs. Additionally, the managing company was paid at a rate of 40 percent of costs on invoices dated April 29, 2020, and July 24, 2020, instead of the 20 percent of costs as approved per the MIRLF Board's January 13, 2019 minutes. There was no documentation provided to show that the MIRLF Board supported the increase to 40 percent in 2020. The lack of internal controls and the failure to maintain adequate supporting documentation were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." INDIANA STATE BOARD OF ACCOUNTS 22 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: . . . (g) Be adequately documented. . . ." 13 CFR 307.13(b) states in part: "Administrative records. RLF Recipients must at all times: (1) Maintain adequate accounting records and source documentation to substantiate the amount and percent of RLF Income expended for eligible RLF administrative costs. . . ." 2 CFR 200.405 states in part: "(a) A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received. This standard is met if the cost: (1) Is incurred specifically for the Federal award; (2) Benefits both the Federal award and other work of the non-Federal entity and can be distributed in proportions that may be approximated using reasonable methods; and (3) Is necessary to the overall operation of the non-Federal entity and is assignable in part to the Federal award in accordance with the principles in this subpart. . . ." Cause Management had not established a system of internal controls that would have ensured compliance or that adequate supporting documentation of amounts paid to the managing company would have been maintained and made available for audit related to the grant agreement and the Activities Allowed or Unallowed and Allowable Costs/Cost Principles compliance requirements. Effect The failure to provide appropriate supporting documentation for the time spent on the grant and the contract percent charged to the federal program prevented the determination of the City's compliance with the Activities Allowed or Unallowed and Allowable Costs/Cost Principles compliance requirements. Questioned Costs Known questioned costs of $14,064 were identified as detailed in the Condition and Context. Recommendation We recommended that the City's management establish a system of internal controls to ensure that all required documentation will be maintained and made available for audit related to the grant agreement and the Activities Allowed or Unallowed and Allowable Costs/Cost Principles compliance requirements. INDIANA STATE BOARD OF ACCOUNTS 23 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2020-004 Subject: Economic Development Cluster - Reporting Federal Agency: Department of Commerce Federal Program: Economic Adjustment Assistance CFDA Number: 11.307 Federal Award Number and Year (or Other Identifying Number): 06-19-01414 Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2019-004. Condition and Context An effective internal control system was not in place at the City to ensure compliance with requirements related to the grant agreement and the Reporting compliance requirement. The City did not have internal controls in place to ensure that all supporting documentation was maintained for reports that were submitted. The City did not comply with the requirements that supporting documents be maintained per the grant agreement and program regulations. Most supporting records were not maintained to support the accuracy of the ED-209 Revolving Loan Fund Semi-Annual and Final Financial Reports. The Final Financial Report key line items did not agree to the provided supporting documentation. The lack of internal controls, noncompliance, and the failure to maintain adequate supporting documentation were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." INDIANA STATE BOARD OF ACCOUNTS 24 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 13 CFR 307.13(b) states: "Administrative records. RLF Recipients must at all times: (1) Maintain adequate accounting records and source documentation to substantiate the amount and percent of RLF Income expended for eligible RLF administrative costs. (2) Retain records of administrative expenses incurred for activities and equipment relating to the operation of the RLF for three years from the actual submission date of the report that covers the fiscal year in which such costs were claimed. (3) Consistent with ? 307.11(a), for the duration of RLF operations, maintain records to demonstrate: (i) The adequacy of the RLF's accounting system to identify, safeguard, and account for the entire RLF Capital Base, outstanding RLF loans, and other RLF operations; (ii) That standard RLF loan documents reasonably necessary or advisable for lending are in place; and (iii) Evidence of fidelity bond coverage for persons authorized to handle funds under the Grant award in an amount sufficient to protect the interests of EDA and the RLF. (4) Make available for inspection retained records, including those retained for longer than the required period. The record retention periods described in this section are minimum periods and such prescription does not limit any other record retention requirement of law or agreement. In no event will EDA question claimed administrative costs that are more than three years old, unless fraud is at issue." 13 CFR 307.14 states: "(a) Frequency of reports. All RLF Recipients, including those receiving Recapitalization Grants for existing RLF's must complete and submit an RLF report, using Form ED-209, in a format and at a frequency as required by EDA. (b) Report contents. RLF Recipients must certify as part of the RLF report to EDA that the RLF is operating in accordance with the applicable RLF Plan and that the information provided is complete and accurate." Cause Management had not established a system of internal controls that would have ensured compliance or that adequate supporting documentation would have been maintained and made available for audit related to the grant agreement and the Reporting compliance requirement. Effect The failure to retain or provide appropriate supporting documentation prevented the determination of the City's compliance with the grant agreement and the Reporting compliance requirement. Questioned Costs There were no questioned costs identified. INDIANA STATE BOARD OF ACCOUNTS 25 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Recommendation We recommended that the City's management establish internal controls and ensure that documentation will be maintained and made available for audit related to the grant agreement and the Reporting compliance requirement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2020-005 Subject: Economic Development Cluster - Special Tests and Provisions - Priority of Payments on Defaulted and Written Off RLF Loans Federal Agency: Department of Commerce Federal Program: Economic Adjustment Assistance CFDA Number: 11.307 Federal Award Number and Year (or Other Identifying Number): 06-19-01414 Compliance Requirement: Special Tests and Provisions - Priority of Payments on Defaulted and Written Off RLF Loans Audit Findings: Material Weakness, Other Matters Condition and Context An effective internal control system was not in place at the City to ensure compliance with requirements related to the grant agreement and the Special Tests and Provisions - Priority of Payments on Defaulted and Written Off Revolving Loan Fund (RLF) Loans compliance requirement. The City did not have effective internal controls in place to ensure that proceeds on a written off RLF loan were applied in the proper order of priority. The proceeds recovered related to a written off RLF loan were applied directly to the outstanding principal balance. The lack of internal controls and the noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." INDIANA STATE BOARD OF ACCOUNTS 26 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 13 CFR 307.12(c) states: "Priority of payments on defaulted and written off RLF loans. When an RLF Recipient receives proceeds on a defaulted or written off RLF loan that is not subject to liquidation pursuant to ? 307.21, such proceeds shall be applied in the following order of priority: (1) First, towards any costs of collection; (2) Second, towards outstanding penalties and fees; (3) Third, towards any accrued interest to the extent due and payable; and (4) Fourth, towards any outstanding principal balance." Cause Management had not established a system of internal controls that would have ensured compliance with the grant agreement and the Special Tests and Provisions - Priority of Payments on Defaulted and Written Off RLF Loans compliance requirement. Effect The failure to establish an effective internal control system enabled material noncompliance to go undetected. Noncompliance with the grant agreement and the Special Tests and Provisions - Priority of Payments on Defaulted and Written Off RLF Loans compliance requirement could have resulted in the loss of federal funds to the City. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the City's management establish a system of internal controls to ensure compliance with the grant agreement and the Special Tests and Provisions - Priority of Payments on Defaulted and Written Off RLF Loans compliance requirement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2020-006 Subject: CDBG - Entitlement Grants Cluster - Reporting Federal Agency: Department of Housing and Urban Development Federal Program: Community Development Block Grants/Entitlement Grants CFDA Number: 14.218 Federal Award Numbers and Years (or Other Identifying Numbers): B-15-MC-18-0010, B-16-MC-18-010, B-17-MC-18-0010, B-18-MC-18-010, B-19-MC-18-0010, B-20-MC-18-010 Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion INDIANA STATE BOARD OF ACCOUNTS 27 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context An effective internal control system was not in place at the City to ensure compliance with requirements related to the grant agreement and the Reporting compliance requirement. The City had not established a system of internal controls to ensure that proper documentation was retained for audit. The City did not complete required Transparency Act - FFATA reporting. For the reports not completed, we were unable to determine if the reports, totaling $635,127, were compliant with the grant agreement and compliance requirement. We consider the $635,127 to be questioned costs. The lack of internal controls and the failure to maintain adequate supporting documentation were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.333 states in part: "Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient. . . ." 2 CFR 170, Appendix A(I)(a) states: "Reporting of first-tier subawards. 1. Applicability. Unless you are exempt as provided in paragraph d. of this award term, you must report each action that obligates $25,000 or more in Federal funds that does not include Recovery funds (as defined in section 1512(a)(2) of the American Recovery and Reinvestment Act of 2009, Pub. L. 111?5) for a subaward to an entity (see definitions in paragraph e. of this award term). INDIANA STATE BOARD OF ACCOUNTS 28 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 2. Where and when to report. i. You must report each obligating action described in paragraph a.1. of this award term to http://www.fsrs.gov. ii. For subaward information, report no later than the end of the month following the month in which the obligation was made. (For example, if the obligation was made on November 7, 2010, the obligation must be reported by no later than December 31, 2010.) 3. What to report. You must report the information about each obligating action that the submission instructions posted at http://www.fsrs.gov specify." Cause Management had not established a system of internal controls that would have ensured compliance or that adequate supporting documentation would have been maintained and made available for audit related to the grant agreement and the Reporting compliance requirement. Effect The failure to complete reporting and to establish an effective internal control system prevented determination of the City's compliance with the Reporting compliance requirement. Questioned Costs Known questioned costs of $635,127 were identified, as detailed in the Condition and Context. Recommendation We recommended that the City's management establish a system of internal controls to ensure proper reporting, and to ensure that documentation be maintained and made available for audit related to the grant agreement and the Reporting compliance requirement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2019-003 Subject: Economic Development Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Commerce Federal Program: Economic Adjustment Assistance CFDA Number: 11.307 Federal Award Number and Year (or Other Identifying Number): 06-19-01414 Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2018-003. Condition and Context An effective internal control system was not in place at the City to ensure compliance with requirements related to the grant agreement and the Activities Allowed or Unallowed and Allowable Costs/Cost Principles compliance requirements. 17 INDIANA STATE BOARD OF ACCOUNTS 17 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The City had an interlocal agreement between the Muncie Industrial Revolving Loan Fund (MIRLF) Board and a managing company to pay an unspecified amount to the managing company for administration of the grant. The City paid $9,407 to the managing company in 2019 from grant funds; however, there was no documentation to support the amount paid. The undocumented amount paid to the managing company is considered questioned costs. The lack of internal controls related to two of the three disbursements audited. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 13 CFR 307.13(b) states in part: "Administrative records. RLF Recipients must at all time: . . . (2) Retain records of administrative expenses incurred for activities and equipment relating to the operation of the RLF for three years from the actual submission date of the last semi-annual report that covers the Reporting Period in which such costs were claimed. . . ." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: . . . (g) Be adequately documented. . . . " Cause Management of the City had not designed or implemented internal control procedures that would have ensured that adequate supporting documentation of amounts paid to the managing company was maintained in compliance with the requirements listed above. Effect The failure to retain or provide appropriate supporting documentation prevented the determination of the City's compliance with the Activities Allowed or Unallowed and Allowable Costs/Cost Principles compliance requirements. 18 INDIANA STATE BOARD OF ACCOUNTS 18 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Questioned Costs Known questioned costs of $9,407 were identified as detailed in the Condition and Context. Recommendation We recommended that the City's management establish internal controls and ensure that documentation will be maintained and made available for audit. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2019-004 Subject: Economic Development Cluster - Reporting Federal Agency: Department of Commerce Federal Program: Economic Adjustment Assistance CFDA Number: 11.307 Federal Award Number and Year (or Other Identifying Number): 06-19-01414 Compliance Requirement: Reporting Audit Findings: Material Weakness, Modified Opinion Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2018-004. Condition and Context An effective internal control system was not in place at the City to ensure compliance with requirements related to the grant agreement and the Reporting compliance requirement. The City did not have controls in place to ensure that supporting documentation was maintained for reports that were submitted. The City did not comply with the requirements that supporting documents be maintained per the grant agreement and program regulations. No supporting records were maintained to support the accuracy of the ED-209 Revolving Loan Fund Semi-Annual and Final Financial Reports. The lack of internal controls and the noncompliance were systemic issues throughout the audit period. INDIANA STATE BOARD OF ACCOUNTS 19 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 13 CFR 307.13(b) states: "Administrative records. RLF Recipients must at all times: (1) Maintain adequate accounting records and source documentation to substantiate the amount and percent of RLF Income expended for eligible RLF administrative costs. (2) Retain records of administrative expenses incurred for activities and equipment relating to the operation of the RLF for three years from the actual submission date of the report that covers the fiscal year in which such costs were claimed. (3) Consistent with ? 307.11(a), for the duration of RLF operations, maintain records to demonstrate: (i) The adequacy of the RLF's accounting system to identify, safeguard, and account for the entire RLF Capital Base, outstanding RLF loans, and other RLF operations; (ii) That standard RLF loan documents reasonably necessary or advisable for lending are in place; and (iii) Evidence of fidelity bond coverage for persons authorized to handle funds under the Grant award in an amount sufficient to protect the interests of EDA and the RLF. (4) Make available for inspection retained records, including those retained for longer than the required period. The record retention periods described in this section are minimum periods and such prescription does not limit any other record retention requirement of law or agreement. In no event will EDA question claimed administrative costs that are more than three years old, unless fraud is at issue." Cause Management of the City had not designed or implemented internal control procedures to ensure compliance with the Reporting compliance requirement. Effect The failure to retain or provide appropriate supporting documentation prevented the determination of the City's compliance with the Reporting compliance requirement. 20 INDIANA STATE BOARD OF ACCOUNTS 20 CITY OF MUNCIE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Questioned Costs There were no questioned costs identified. Recommendation We recommended that the City's management establish internal controls and ensure that documentation will be maintained and made available for audit. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

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